Think you're ready to be an entrepreneur? There are a lot of things to consider in starting out. Here’s just a few.
What sort of business should you choose?
Sole trader, partnership or company? Should you trade under your own name or a business name? And if the latter, how do you register a business name?
The type of business structure you select is important because it may impact the tax you pay, your costs and the level of protection you have.
Being a sole-trader is one of the simplest ways to set up a business, but as an individual, you are legally responsible for all aspects of the business.
It differs from, say, a company, which is a separate legal entity, and it is also different to a partnership.
Sole traders generally have less reporting requirements than a company, and are allowed to trade under their tax file number. They also don’t require a separate bank account for work, unlike a company.
But sole traders also have unlimited liability, which means personal assets are at risk if the business venture is ultimately unsuccessful.
When choosing a business structure you need to consider both the current and future needs of your business, as well as the tax implications for the choice you make. Business.gov.au is an Australian Government website which explains the implications of different business structures and what you need to know when choosing one.
The site also provides a breakdown of the start-up costs of being a sole-trader versus a company.
What’s the plan?
For anyone who wants to start their own business, or even go it alone as a sole trader, having a viable business plan in place is crucial. Do you have savings you can access? Do you have the equipment and tools you need? Do you have a marketing strategy? Have you lined up some contract or part-time work to make sure you can cover bills and keep food on the table during your launch phase? Do you have access to other capital if you need it?
It’s one thing to have a great idea for a business, but executing it is another thing entirely. Consider creating a business checklist, such as this one from business.gov.au before you start the journey.
Cash flow
For those who are thinking of becoming self-employed, the change in income arrangements can be quite a shock to the system. Unlike a job which pays a regular income, a small business might not. While annual income may prove to be quite strong overall, managing the day-to-day cash flow as a sole trader is a different story.
How will you manage if you run out of cash before the next contract? Will you be living on credit cards? It’s a good idea to make sure you set a budget you can stick to. Things like the tax implications of your trading, costs of business, insurances and rent can all have an impact on your cash flow at any given time.
When is your day off?
It’s one thing to work your own hours, but another entirely to stop. One of the many challenges sole traders and small business owners face is the inability to take time away from work. For a sole trader, having a holiday often means you can’t generate an income and when you are your own boss, no-one will pay you annual leave.
So it's crucial to have a handle on cash flow, and also make sure there’s work lined up for when you return from a break. Also consider the needs of your clients. If you have the type of clients who need contact with you on a regular basis, you may find they follow you on your holiday.
Don’t forget superannuation
It’s one thing to have a business, but it’s also equally important to plan for your retirement. In this context, it's good to consider both how you will plan for your own future, in addition to being aware of what your obligations are to any employees.
Be prepared
No matter where your business journey takes you, or what tools you use, it's crucial to keep track of your business transactions to maintain cash flow, stay on top of your tax and super obligations, and keep your accounting up to date. Before you start, you may also wish to consider up-skilling through one of the many programs available that support learning while you earn.
You may also wish to seek advice from a reputable accountant, financial or business adviser.
